What positions has CRA taken regarding when specific oil and gas production activities form part of the same business for s. 111(5) purposes and regarding when specific oil and gas production businesses would be similar to one another?
CRA noted that in 9234795, a taxpayer operated oil or gas wells in one province prior to an acquisition of control and then acquired new oil or gas wells in another province after the acquisition of control. It suggested that the new oil or gas wells would be considered to be a different business, but it stated that the place of production will not by itself determine whether the same business is conducted after the acquisition of control, and its focus was on the “similar properties” test in s. 111(5), as to which it stated that oil or gas from wells located in different provinces would be considered to be a “similar property.”
CRA stated:
To our knowledge, the CRA has not taken a position on whether a particular type of hydrocarbon is similar to a different type of hydrocarbon in the context of subsection 111(5). However, in technical interpretation 9314945, the CRA opined that where a corporation carries on the business of mining and selling metallurgical coal as well as the business of mining and selling other minerals, income therefrom will be considered to be derived by those businesses from the “sale, leasing, rental or development…of similar properties” for the purposes of subparagraph 111(5)(a)(ii) provided that the other conditions in paragraph (a) are met. The same document confirms the CRA’s view that “similar” is to be interpreted narrowly, stating, “In our view, the word “similar” in the context of subsection 111(5) of the Act has a narrower meaning than “having characteristics in common” and should be interpreted as “of the same general nature or character”. This interpretation is based on the case of Barnwell Consolidated School District No. 15 v. Canadian Western Natural Gas, Light, Heat & Power Co. ((1922) 69 DLR 401 (Alta SC (AD)).